The Moment
You have life insurance, health insurance, car insurance, and home insurance. But the most valuable asset you own — your ability to earn income — is probably uninsured.
One in four 20-year-olds will become disabled before reaching retirement age. A back injury, cancer diagnosis, or mental health condition can eliminate your income for months or years. Without disability insurance, you are one accident or illness away from financial crisis.
How It Works
Long-term disability (LTD) insurance replaces a portion of your income if you cannot work. Most policies replace 60% of your pre-disability income, with a monthly benefit cap ($5,000-$15,000/month depending on the policy).
Two types: - Short-term disability (STD): Covers the first 3-6 months of disability. Often provided by employers. Replaces 60-70% of salary. - Long-term disability (LTD): Kicks in after STD ends and covers you until age 65 or recovery. This is the critical policy.
The definition of disability matters more than anything else: - Own-occupation: You are disabled if you cannot perform your specific job. A surgeon who loses hand function is disabled even if they could teach. This is the gold standard — insist on own-occupation coverage. - Any-occupation: You are disabled only if you cannot perform any job for which you are qualified. Much harder to claim. Avoid if possible.
Cost: Individual LTD insurance costs 1-3% of your annual income. On $100,000 income, that is $1,000-$3,000/year ($83-$250/month) for $5,000/month in coverage.
Employer vs Individual Policy
Employer-provided LTD: - Pros: Often free or heavily subsidized. Easy enrollment. No medical underwriting. - Cons: Ends when you leave the job. Benefits are taxable (if employer pays premiums). Often any-occupation definition. Limited benefit amount.
Individual LTD policy: - Pros: Portable (stays with you regardless of job). Benefits are tax-free (you pay premiums with after-tax dollars). Own-occupation definition available. Customizable. - Cons: More expensive. Requires medical underwriting. Must apply while healthy.
Best approach: Take the employer policy (often free) AND supplement with an individual policy. The employer policy provides a base; the individual policy fills the gap and stays with you through job changes.
Run Your Numbers
Evaluate your income protection gap.
Life Insurance Needs Calculator
You are significantly underinsured. A term life policy for $900,000 would close the gap.
What to explore next
- →How do I evaluate my employer's disability coverage?
- →What does own-occupation disability coverage mean?
- →How much disability insurance do I need?
Frequently Asked Questions
Does Social Security Disability Insurance (SSDI) cover me?
SSDI exists but is extremely hard to qualify for — the approval rate is roughly 30%, the definition of disability is strict (cannot perform any substantial gainful activity), and the process takes 3-6 months. Average SSDI benefit: $1,537/month (2024). This is survival-level income, not income replacement. Do not rely on SSDI as your disability plan.
I'm healthy — do I really need this?
Most disabilities are caused by illnesses (cancer, heart disease, mental health conditions, musculoskeletal disorders) — not accidents. Being healthy today does not protect you from a future diagnosis. The time to buy disability insurance is while you are healthy — once you have a condition, you may be uninsurable or face exclusions.